Labor & Employment: May 1999

• Affirmative Defense to Title VII Sexual Harassment Claims Extended to California FEHA Claims
• Proposal to Expand California Discrimination Laws Under Consideration
  
• Workplace Investigations By Outside Consultants May Fall Under Fair Credit Reporting Act.
  
• Counselor's Corner - Sex, Lies and E-Mail Systems
  

Affirmative Defense to Title VII Sexual Harassment Claims Extended to California FEHA Claims

A federal district court recently delivered a message to plaintiffs who seek to pursue sexual harassment claims under both federal and state law. In Kohler v. Inter-Tel Technologies, C98-0378 (N.D. Cal., April 13, 1999), the court ruled that plaintiff Leslie Kohler, whose sexual harassment claim under Title VII was dismissed, could not bring a state law claim for sexual harassment either. The court held that if employers act promptly to correct and address sexual harassment, and if the employee delays unreasonably in reporting such claims, an employee's sexual harassment claim will be barred under both federal and state law.

Kohler is a very significant decision. Prior to this decision, under the California Fair Employment and Housing Act ("FEHA"), employers were responsible for a supervisor's unlawful behavior even if the employer could prove it did everything within its power to prevent harassment and to resolve the problem once a complaint was brought to its attention. The FEHA standard is significantly higher than the standard of liability recently established by the U. S. Supreme Court under Title VII, the federal anti-discrimination statute. The defendant in Kohler, however, was successful in convincing a federal judge that, since the purposes of Title VII and the FEHA are the same, the standard of liability should be the same as well. Essentially, the defendant argued that the strict liability standard under the FEHA should be subject to the same affirmative defense recently recognized and defined by the U. S. Supreme Court.Kohler is a very significant decision. Prior to this decision, under the California Fair Employment and Housing Act ("FEHA"), employers were responsible for a supervisor's unlawful behavior even if the employer could prove it did everything within its power to prevent harassment and to resolve the problem once a complaint was brought to its attention. The FEHA standard is significantly higher than the standard of liability recently established by the U. S. Supreme Court under Title VII, the federal anti-discrimination statute. The defendant in Kohler, however, was successful in convincing a federal judge that, since the purposes of Title VII and the FEHA are the same, the standard of liability should be the same as well. Essentially, the defendant argued that the strict liability standard under the FEHA should be subject to the same affirmative defense recently recognized and defined by the U. S. Supreme Court.

Kohler sued Inter-Tel Technologies seeking relief for alleged sexual harassment and discrimination by her supervisor. Kohler's complaint contained a claim for sexual harassment under both Title VII and the California FEHA. Kohler alleged that, during the four months of her employment, her supervisor made inappropriate comments to her, telephoned her at home during non-work hours, asked her out for a drink, commented on the length of her skirts, and told her that he found her attractive. Kohler, however, did not report the alleged harassment at any time during her employment nor did she indicate at the time of her resignation or during her exit interview that she believed she had been sexually harassed. One month after she resigned from employment, Inter-Tel received Kohler's administrative complaint filed with the U.S. Equal Employment Opportunity Commission ("EEOC"), thus learning for the first time of her allegations.

Upon receipt of the EEOC charge, Inter-Tel immediately sent Kohler a letter stating that the company was conducting an investigation into her complaint. Furthermore, Inter-Tel advised Kohler that if the allegations against her supervisor were the basis for her resignation, and if she had not found alternate work, she could return to work under the same conditions of her previous employment, with full back pay and without having to report to the same supervisor. Lastly, Inter-Tel hired an independent investigator to investigate Kohler's claim. Based on the independent investigation, it was determined that the sexual harassment allegations were unsupported by concrete evidence.

In addition to refusing Inter-Tel's offer to return to work, Kohler did not follow the company's published procedure for reporting alleged sexual harassment. In its employee manual, which plaintiff received on her first day of employment, Inter-Tel set forth its policy against sexual harassment, including an explicit complaint and reporting procedure. The policy stated that any employee who believed he/she was the victim of sex discrimination or harassment should report the conduct immediately to Human Resources for investigation.

Inter-Tel argued that Kohler could not maintain a claim for sexual harassment under Title VII or the FEHA based on the affirmative defense established by the U.S. Supreme Court in Burlington Industries, Inc. v. Ellerth 524 U.S. 742 (1998), and Faragher v.City of Boca Raton 524 U.S. 775 (1998). (See Legal Update July 1998.) The Supreme Court held in these cases that if the plaintiff suffered no tangible adverse employment action and (1) the employer exercised reasonable care to prevent and promptly correct any sexual harassment and (2) the employee unreasonably failed to take advantage of the preventive or corrective opportunities provided by the employer, then the employer could defend itself successfully against any liability or damages under Title VII.

Kohler argued that, while federal law clearly permits such a defense, a distinction exists between Title VII and the FEHA, such that the affirmative defense recognized by the U.S. Supreme Court does not apply to FEHA claims. The court rejected that contention, noting that California courts have consistently looked to federal decisions interpreting Title VII when evaluating FEHA claims. Specifically, the court stated "there is no reason to assume that California courts would not follow the holdings of Ellerth and Faragher especially given the fact that the policy set forth by the California Legislature supporting FEHA is the same as that supporting Title VII ...."

There is no way to predict whether California courts will follow the lead of this federal judge. In any case, California employers should continue their efforts to prevent and promptly remedy harassment, and to assert those efforts as a defense to any claims of harassment made under the FEHA.

Proposal to Expand California Discrimination Laws Under Consideration

Omnibus bill AB 1670, backed by the Democratic majority on the California Assembly Judiciary Committee, passed its first legislative hurdle in early May. This bill contains a number of proposals that, if enacted, would significantly impact employers. For example, the bill extends harassment protections under the Fair Employment and Housing Act ("FEHA") to contract workers, significantly broadens the definition of "supervisor", extends protections to employees who claim to be discriminated against because of their "perceived membership" in a protected class or their association with a protected class, and proposes an increase in the amount of damages and administrative fines that may be awarded by the Fair Employment and Housing Commission in employment discrimination cases from $50,000 to $150,000.

Currently, California courts have been stating that employers are held strictly liable for harassment of employees by supervisors. This means that, regardless of whether the employer knew of the harassing conduct on the part of a supervisor, the employer would be held responsible for that conduct. The term "supervisor" has in the past been defined as an agent of the employer who has authority to hire and fire employees. And although the California Supreme Court recently depublished a case holding that employees were strictly liable for harrassment by a superior who did not have hiring and firing authority, it has not, as yet, directly addressed this issue. AB 1670 proposes an expansive definition of supervisor which would make employers automatically liable for the actions of line workers who merely give instructions to fellow workers.

The bill also proposes to extend FEHA coverage to include discrimination against an employee based on his/her "perceived membership" in a protected class or association with a protected class. Currently, the FEHA only protects those employees who claim discrimination because of actual membership in a protected class; discrimination based on the perception of membership in a protected class is limited to persons perceived to have a disability.

In addition, the bill proposes to extend the FEHA's provisions concerning sexual harassment to independent contractors, thus making it easier for these kinds of workers to seek relief under the statute. Currently, the FEHA covers only the harassment of employees. Employers should note, however, that the use of contract workers does not insulate companies from the imposition of liability, even under existing law. An employer could be held liable under a joint employer theory or under a negligence theory for its failure to take reasonable steps to protect contract workers who are performing work on its premises from injury. In any case, the proposed change would facilitate the prosecution of harassment claims by a group of persons not currently protected by the statute.

While AB1670 has some distance to go before it becomes law, employers would do well to watch its progress carefully. If enacted in its current form, it promises to expand employer obligations significantly.

Workplace Investigations by Outside Consultants May Fall Under Fair Credit Reporting Act.

Last year, the U.S. Supreme Court held in Faragher v. City of Boca Raton and Burlington Industries v. Ellerth (see Legal Update, July, 1998) that a company could defend itself against workplace harassment claims under Title VII if it could prove that it conducted a prompt and thorough investigation and took appropriate remedial action. Even though this defense was established under federal law, a federal court has recently held that this defense is also applicable to claims of sexual harassment brought under the California Fair Employment and Housing Act ("FEHA") in federal court. (See Affirmative Defense to Title VII Sexual Harassment Claims Extended To California FEHA Claims, this issue.)

A recent opinion letter written by a staff attorney of the Federal Trade Commission ("FTC"), however, suggests that the outsourcing of the kind of workplace investigations contemplated by the Supreme Court may result in the unexpected application of the federal Fair Credit Reporting Act ("FCRA"), a consumer protection statute. As this opinion letter explains, a "consumer reporting agency" under the FCRA is any person who is paid to assemble "consumer reports" to third parties. A "consumer report" is defined as a report containing information about an individual's "character, general reputation, personal characteristics, or mode of living" that may be used as the basis for taking an adverse employment action, among other things. An "investigative consumer report" is a consumer report that includes information from interviews with "neighbors, friends or associates of the consumer".

Relying on these provisions in the statute, the FTC lawyer concluded that outside investigators - including attorneys and consultants - who are hired by employers to investigate claims of harassment, workplace violence, tort or fraud, or eligibility for workers' compensation benefits, may be considered "consumer reporting agencies" under the FCRA, a conclusion that has significant implications for the employers who retain them.

If the FTC lawyer is correct, and an outside consultant retained by an employer to conduct a workplace investigation is properly deemed to be a "consumer reporting agency", and any report generated by such consultant is an "investigative consumer report", then the employer will be required, among other things, to provide a summary of rights to the employee being investigated, disclosing the scope and nature of the investigation; to obtain that person's authorization before seeking a report; and to provide a notice/waiting period before taking any adverse action against the employee being investigated.

The FCRA's requirements are quite onerous, and would seem inconsistent with the goals sought to be furthered by the Supreme Court in the Faragher and Ellerth cases. No court has yet addressed the issues raised by the FTC attorney's opinion and, undoubtedly, there will be further legal, and perhaps legislative, battles as to the appropriate reach of the FCRA. Until the issue is clarified, however, employers should not alter the way in which they have been handling workplace investigations without consulting counsel. The FTC itself has not endorsed its staff attorney's opinion. Moreover, Congress did not authorize the FTC to issue regulations or provide interpretive guidance regarding the FCRA. For these reasons, the weight to be accorded this opinion is very much an open question.